Help Shift the Economy Into Drive with Immigration Reform

This is the beginning of a series called Policy Insights, by Growthology contributor Chris Jackson. Because federal, state, and local policy play a large role in shaping the environment in which entrepreneurs start and grow their companies, it is important to understand where policymakers are providing the right incentives for economic growth through entrepreneurship and where specific polices create barriers for new and growing companies.

After more than five years of lackluster economic growth, with monetary policy resorting to extraordinary measures to stabilize an economy teetering between another recession and true recovery, there is reason to be optimistic. Unemployment, an obvious indicator of the failure of the economy to provide opportunity, has fallen to the lowest mark in 78 months (5.6 percent). Last year saw a yearly GDP growth rate of 2.4 percent, including a mark of 5.0 percent in the third quarter. Four of the last six quarters have seen GDP growth over three percent, the baseline level needed to keep up with population growth. Inflation has hovered between one and two percent for two years, just below the Federal Reserve’s target rate of two percent. Health care inflation is down, gas prices are down, and consumer confidence is at its highest point since 2007. All these events are positive indicators (of varying degrees) of a stronger, recovering economy that is better allocating resources. Not all measures show such a sunny outlook, as wage growth is still sluggish, labor force participation rates remain worryingly low, and interest rates remain at the extreme levels prompted by a powerful economic downturn. Yet, it is hard to deny that there are tangible improvements of a successful recovery.

The next piece of the economic growth puzzle is to sustain this positive economic growth year to year. While the short term indicators are pointing in the right direction, there is no shortage of issues that hamper sustained economic growth. Long term trends such as the declining rate of entrepreneurship, the accumulation of student debt, and a business environment that favors incumbents over startups cramp the ability of Americans to realize their potential. A debate rages among economists – are these and other foreboding long-term trends the precursor to another damaging recession, one which will be even harder to emerge from? Without another technological revolution, can developed countries like the United States allocate resources and leverage policy to boost the job creation, innovation, and human capital that drives productivity?

One underestimated driver of economic growth is the contributions of immigrants. Many immigrants that come to the U.S. are highly educated and skilled, with nearly a third holding bachelor’s degrees. Immigrants as a group are more than twice as likely to start a business as native born Americans. Not only do immigrants start many businesses, contributing to the dynamism that economies need, but some of the firms they have created have been wildly successful. Immigrants have created nearly 50 percent of America’s top venture-backed companies and those companies have created an average of 150 jobs each

Some of the most innovative companies in the world, including eBay, Yahoo!, and Google, were founded or cofounded by American immigrants. The innovation and success that immigrant entrepreneurs are capable of weaves its way through American history. As companies founded by immigrants in the 19th century such as Anheuser-Busch, Carnegie Steel Company, and Proctor and Gamble thrived, the cities they were founded in (St. Louis, Pittsburgh, and Cincinnati, respectively) grew in size and importance as they took advantage of the productivity of these immigrant businesses. A central tenet of the American Dream, that opportunity exists for anyone and hard work is the path to success, is a core belief of immigrants that come to United States looking to better their lives. As entrepreneurs, these immigrants not only create businesses that provide value in products or services, but the expansion of those businesses results in hiring of other immigrants and natives. Immigrants that work in the United States aren’t substitutes for American workers, but complements that make all workers more productive.

Alas, current American immigration policy provides few options for immigrants to come to the United States for work and stay in the U.S. And the options for immigrants who want to start a company are even slimmer. The most popular method of immigrating to the United States as a worker is through an H-1B visa. These visas are for employers who wish to sponsor foreign workers with advanced knowledge in an industry. However, the U.S. government caps the amount of H-1B visas available at 85,000, and the number of applications often reaches that limit within the first week. H-1B visas also do nothing for immigrants who do not have an employer willing to sponsor their application. Another limited option for talented immigrants is the EB-2 visa, or the “exceptional worker” visa. This visa is for individuals with advanced degrees and individuals who receive this visa may be granted a National Interest Waiver, which allows the immigrant to apply for permanent residency (aka green card).

More talented immigrants come to the U.S. on student (F-1) visas. Some of these foreign students are interested in starting businesses here in the United States after graduation (or even during their studies). Yet, many are only allowed to stay in the United States after graduation through enrollment in the Occupational Practical Training (OPT) program. After twelve months of working in a STEM firm, whether at a business they founded or as an employee, the foreign graduate must return to their home country unless they are granted a one-time 17 month extension or acquire a new visa. This restrictive process creates an incredible waste. These are the highly educated and skilled people that countries should be bending over backwards to welcome and facilitate their immigration. Yet they are left no option but to return to their home country, which then benefits from the increased productivity and innovation of the American-trained entrepreneur. This type of policy results in a “reverse brain drain” solely because American immigration policy provides no options for foreign students who wish to be entrepreneurs to start their business here and keep it here. Even post-graduation programs like OPT are mere band-aids on the wound. Without a visa that provides a path to permanent residency, immigrant founders who start their business in the U.S. are left in the dark about the long term future of their immigration status, not to mention their business. This uncertainty created by the finite length of the available visas and no path to permanent residency can cause entrepreneurs to have difficulty attracting investors, setting up long term business plans, and attracting high quality talent.  This collection of nonsensical visa options for eager and talented individuals who can provide a sustainable source of economic growth results in a terrible waste of an economic resource, as well as a rejection of typical American principles of inclusiveness and meritocracy.

Policymakers often claim to act with the intention to create American jobs. As currently structured, America’s immigration policy does little to ensure that a valuable source of job creation will continue to function as a driver of economic growth. By impeding the ability of some of the most impactful economic actors to contribute, policymakers are providing other, more entrepreneur-friendly countries with the opportunity to serve as havens for skilled immigrants. America has a strong history of immigrants who have started world renowned companies. But current policy forsakes that tradition. Without policy changes, America risks losing its historical advantage as the home for entrepreneurial talent in the global economy.

  

For more on how immigration and entrepreneurship go together, check out the latest Kauffman policy digest on entrepreneurship, Immigrant Entrepreneurs: A Path to U.S. Economic Growth, and Dane Stangler’s piece at Forbes.com, The Remedy to America’s Stalled Startup Activity: Immigration Reform.

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chris jackson

Chris Jackson

Chris Jackson is a research assistant in Research and Policy for the Ewing Marion Kauffman Foundation, assisting in the understanding of what policies and environments best promote entrepreneurship and education in the pursuit of economic growth.